The t/p is a general partner in a partnership, receives a K-1 that reports $19,500 Roth 401(k) and $17,500 Keogh contributions. The second one is claimed as a SE retirement deduction on the t/p’s tax return.
1. The t/p doesn’t have any other TIRA or SEP IRA accounts. He wants to make a backdoor Roth IRA contribution (high income). Is the Keogh account balance considered part of the total TIRA and SEP IRA account balance for the pro-rata rule?
2. Does the Keogh contribution reduce the QBI deduction as a SEP IRA contribution does?
1. Only IRA balances affect the pro rata calculation. Instructions to line 6, Form 8606: Enter the total value of all your traditional, SEP, and SIMPLE IRAs as of December 31, 2020, plus any outstanding rollovers.
2. Keogh plan contributions reduce QBI. From the Form 8995-A instructions: To figure the total amount of QBI, you must consider all items that are attributable to the trade or business. This includes, but isn’t limited to, unreimbursed partnership expenses, business interest expense, deductible part of self-employment tax, self-employment health insurance deduction, and contributions to qualified retirement plans.
In other words, the deduction for Keogh contribution is claimed the same way as a SEP IRA deduction on the tax return. It reduces the QBI deduction the same way as a SEP IRA deduction does, BUT it has NO effect on the backdoor Roth IRA scheme, correct? A loophole?